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Rate Review Training for AdvocatesSponsored by Consumers Union and Robert Wood Johnson Foundation

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Agenda

Welcome

Lynn Quincy Consumers Union

Why 2015 Health Insurance Rates Need Scrutiny Jay Angoff Mehri & Skalet

What is a Rate? What is a Rate filing?

Key Parts of the Filing:

Medical Claims and Trend

Administrative Expenses

Profit and Surplus

How Consumer Groups Can Participate

Jay Angoff

Real Stories from State Advocates Various

Why CMS Need to Hear From Us Jay Angoff

Q&A Jay Angoff and others

Wrap Up & Next Steps Betsy Imholz

Consumers Union

Housekeeping Rules

• During Q&A, phones will be unmuted but please personally mute your phone unless you are speaking.

• Please queue up your questions in the chat feature-we will try to get to as many as possible

• Please do NOT put us on hold – everyone will hear your hold music.

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Rate Review for Non-Actuaries

Taking the Mystery out of Actuarial Analysis and the Insurance Rate-

setting Process

Jay AngoffMehri & Skalet, PLLC April 9 and 10,

2014

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Taking the Mystery out of the Rate Making Process: Structure of the

WebinarI. What a rate filing is and what’s in it

• Elements of the rate filing and the issues they raise

II. Consumer Participation in the rate review process

• Making rate-filings public

• Seeking hearings

• Participating in process to the maximum extent state allows

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A rate filing is a series of documentscontaining

the information justifying, or purporting to justify, the rates the insurer seeks to charge.

What is a rate filing?

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• Pre-ACA Rate Filings:

No mandated format

but

Key document: Actuarial Memorandum

• ACA Rate Filings:

3 Parts,

but still

Key document: Actuarial Memorandum

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What is the Actuarial Memorandum? 

•Narrative explaining the different steps that go into calculating the rate •Lots of Exhibits showing the data, assumptions, and calculations at each step •A summary sheet showing how the steps fit together 

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10

Rate vs. Premium

Base Rate(justification

applies to this) X

Rating factors(if allowed by State):

Age

Geography

Tobacco

# of covered family members

=Final

Premium

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What Goes Into a Rate?

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Key elements of the rate filing--Trend •What is it? Rate of increase in medical costs •What is it applied to? Amount paid out in past years •How is it determined? Hard data, assumptions, estimates, predictions, “actuarial judgment” •What are its different elements?

• Unit cost trend• Change in utilization• Deductible leveraging• New benefits

 

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Deductible Leveraging Example: Provider Payment Increases from $2,500 to

$3,000

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2013 2015Insurer Pays

Deductible

Total increase is 16.7%

…but insurer’s share is higher – 20%

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How to challenge trend--traditional methods•Make sure starting point is reasonable•Make sure data is not cherry-picked. E.g., what is most reasonable trend for 2014 based on the following:

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

6.6 8.4 9.7 8.6 7.2 6.8 6.5 6.3 4.7 3.8 3.8 3.6 3.7

• Make sure no double counting

Source: National Health Expenditure Data

Table: Average Annual Change In Personal Health Expenditures

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How to challenge trend--based on ACA 

•Has actuary considered provisions that could reduce rates in 2015? E.g.,  

• Delivery system reforms, e.g., ACOs, VBP, EHR, PFP

 • Lower payment to providers

 • Healthier 2015 pool

 • Weak enforcement

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Key elements of the rate filing--Administrative expenses

What are they?

• General administrative expenses

 • Commissions

• Taxes, licenses and fees  

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How to challenge administrative expenses •Challenge their accuracy--compare to previous years’ and Annual Statement data •Has actuary considered ACA expense-reducing provisions? 

• Nature of selling through the Exchange, and individual mandate

• Elimination of underwriting 

• Taxpayer-funded marketing 

• Likely decline in commissions •Prevent pass-through of certain types of expenses  

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Key elements of the rate filing--Underwriting profit 

•Underwriting profit may not be necessary, because of investment income •“Contingencies” or similar provision not necessary 

• Effect of “3 Rs”--Risk-adjustment, reinsurance, risk-corridors

 

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Special consideration re non-profit--mainly Blue Cross--plans 

• Surplus : The amount insurers hold over and above what they project they need to pay claims

 

• Surplus is good 

• But there can be too much of a good thing

 • For-profit v. non-profit plans: different

standards may apply   

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“Surplus” versus “Reserves”

• Reserves: a category of funds set aside for projected claims.

• Surplus: the amount insurers hold over and above what they project they need to pay claims.

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How surplus is measured: the RBC ratio 

• What is it? Ratio of an insurer’s actual surplus to the legal minimum it must hold to do business

• 200% is practical minimum 

• 375% is Blue Cross Association minimum

 • 500% is informal Blue Cross

standard for “strong” Blue plan

 

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Carrier Surplus RBC Ratio

CareFirst (MD, DC) $2.1 billion 977%

Regence (OR, ID, UT) $2.0 billion 978%

TN $1.2 billion 1,023%

HCSC (IL, TX, OK, NM)

$7.9 billion 1,083%

NC $1.8 billion 1,098%

LA $1.1 billion 1,099%

FL $3.1 billion 1,335%

AZ $.8 billion 1,493%

CA Blue Shield $3.3 billion 1,512%

MS $.5 billion 1,683%

2010 RBC Ratios of Selected Non-profit Blue Cross plans

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The 3 Rs--Risk-Adjustment, Risk Corridors and Reinsurance 

• Concept underlying all three: If an insurer has bad experience, it gets paid

 

• Risk-Adjustment: If an insurer’s experience is worse than its competitors it gets paid by its competitors

 • Risk Corridors: If an insurer’s experience is

worse than it predicted it gets paid by the government

 

• Reinsurance: If an insurer has high cost claims it gets paid from a pool funded by small and large group insurers, administrators of self-insured plans, and other individual insurers

 

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How Consumer Groups Can

Participate in the Rate Review

Process

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Effective Rate Review Programs

• States with Effective Rate Review Programs, as found by HHS, review proposed rate increases ≥ 10%; in states without Effective Rate Review Programs HHS reviews rates proposed rate increases ≥ 10%.

• Most states review their own rates

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What Does it Mean to Have an “Effective” Rate Review

Program?

• Under the ACA, having an “effective” rate review process only means the state satisfies HHS’s requisite process for receiving and evaluating rate filings.

• “Effective” rate review does not mean that the state or the Federal government will probe deeply on rates or has the capacity to block an unreasonable rate increase.

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ACA authorizes rate review, not rate disapproval

The federal rules do not authorize HHS to disapprove unreasonable

rates, nor do they authorize any state to do so that does not already have

such authority.

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How consumer groups can participate in the rate review process 

• Try to make rate filings public 

•That are filed with HHS•That are filed with state DOI’s

 

• How?

• Letters• FOIA request• In-person meetings• Press• Direct action

• See Trade Secret Memo  

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HHS has the power to make rate filings in all

states public

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How consumer groups can participate in the rate review process 

• Try to get the DOI or HHS to hold a hearing

 • In many states person aggrieved has

right to a hearing 

• In essentially all states Commissioner has discretion to hold a hearing

  

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Type Rate Justification

Public ?

Holds Hearings?

1 No No

2 Yes No

3 No Yes

4 Yes Yes

What Type of State Are You In?

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How consumer groups can participate in the rate review process

Even in least consumer-friendly states (Type 1 states):

• File comments

• If justified, challenge whatever in the rate filing is public based on publicly-available data. E.g.,

• To challenge trend--use public data on trend

• To challenge expenses--use Annual Statement data on

expenses• To challenge underwriting profit--

calculate total rate of return based on Annual Statement data

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How consumer groups can participate in the rate review process

 Even in least consumer-friendly states (Type 1 states):

• Ask for description/explanation of non-public information

 

• Ask AG or ICA to intervene 

• Press  

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Lemons into Lemonade

• Even in the most recalcitrant states, advocates should urge:

• 3Rs be considered as mitigating

• Accurate trend for 2015 (with no double counting).

• No underwriting profit for non-profit plans with excess surplus

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How consumer groups can participate in the rate review process 

Where the state has made the rate filing public, but declines to hold a hearing (Type 2 states): 

• Consumer groups can take same steps as in least consumer friendly states

 and

 • Do their own analysis of the filing and submit

it to the Department    

 

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How consumer groups can participate in the rate review process 

Where the state has declined to make the rate filing public, but holds a hearing (Type 3 states): 

•Petition to participate in the hearing, and in particular 

• To send out information requests

• To submit evidence and argument 

• To question witnesses

•Participate to maximum extent permitted by the Department

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How consumer groups can participate in the rate review process 

Where the state both makes the rate filing public, and holds a hearing (Type 4 states): 

•Consumer groups can do everything they can do in the three less consumer-friendly types of states 

plus

•Question the actuary based on data disclosed in the Actuarial Memorandum

•Recommend that the rate be reduced based on data disclosed in the Actuarial Memorandum

 

Additional Materials to Help:

On: consumersunion.org/ratereview

• Exhibit A: 50 State Overview: Statutes, Type of Rate Review and Public Participation

• Exhibit B: 50 State Overview: Conditions under which Rate Review Hearings Held

• Exhibit C: 50 State Overview: Public Access to Rate Filing

• Exhibit D: 50 State Overview: Opportunity to Comment per DOI

• Exhibit E: State Decisions Renewing Non-Compliant Plans

• Exhibit F: Trade Secret Legal Memo

And more to come…

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Acknowledgements

• Extensive review by Consumers Union

• Sponsored by Consumers Union and the Robert Wood Johnson Foundation

State Advocates Share Their Stories

Q&A

Wrap Up & Next Steps